Duration,trading volume and the price impact of trades in an emerging futures market |
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| Institution: | 1. Manchester Business School, University of Manchester, Booth Street West, Manchester M15 6PB, UK;2. Bank of Jamaica, Jamaica;1. Department of Civil and Environmental Engineering, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 151-744, Republic of Korea;2. Department of Civil and Environmental Engineering & Integrated Research Institute of Construction and Environmental Engineering, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 151-744, Republic of Korea |
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| Abstract: | This paper examines the price impact of trading intensity on the MexDer TIIE28 interest rate futures contract, one of the world's most actively traded contracts. A novel volume-augmented duration model of price discovery decomposes trading intensity into liquidity and information components. Duration between transactions exerts a positive influence on price changes, while increases in order flow and trade volume exert positive and negative influences, respectively. The liquidity component dominates the information measure, suggesting that liquidity considerations dictate trade timing. These findings are rationalized with reference to MexDer's organizational structure, specifically the affirmative obligations placed upon marketmakers to trade a minimum volume. |
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